Auditing and Assurance Services (16th Edition)
16th Edition
ISBN: 9780134065823
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 21, Problem 6RQ
To determine
Discuss the ways; the auditor could uncover the misstatement, assuming that there are no perpetual records.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
An auditor discovered the following errors and irregularities while performing tests of controls:
Inventory damaged by rain remains in inventory at full cost.
Required:
What control would have prevented or detected each of the aforementioned errors/irregularities?
What tests should the auditor perform to test each control?
To which financial statement assertion does the error or irregularity relate?
During the taking of physical inventory, the controller intentionally withheld several inventory tags from the employees responsible for the physical count. After the auditor left the client’s premises at the completion of the inventory observation, the controller recorded nonexistent inventory on the tags and thereby significantly over-stated earnings. How could the auditor have uncovered the misstatement, assuming that there are no perpetual records?
During the taking of physical inventory, the controller intentionallywithheld several inventory tags from the employees responsible for the physical count.After the auditor left the client’s premises at the completion of the inventory observation,the controller recorded nonexistent inventory on the tags and thereby significantly overstated earnings. How could the auditor have uncovered the misstatement, assuming thatthere are no perpetual records?
Chapter 21 Solutions
Auditing and Assurance Services (16th Edition)
Ch. 21 - Prob. 1RQCh. 21 - Prob. 2RQCh. 21 - Prob. 3RQCh. 21 - Prob. 4RQCh. 21 - Prob. 5RQCh. 21 - Prob. 6RQCh. 21 - Prob. 7RQCh. 21 - Prob. 8RQCh. 21 - Prob. 9RQCh. 21 - Prob. 10RQ
Ch. 21 - Prob. 11RQCh. 21 - Each employee of the Gedding Manufacturing Co., a...Ch. 21 - Prob. 13.1MCQCh. 21 - Prob. 13.2MCQCh. 21 - Prob. 13.3MCQCh. 21 - Prob. 14.1MCQCh. 21 - Prob. 14.2MCQCh. 21 - Prob. 14.3MCQCh. 21 - Prob. 15.1MCQCh. 21 - Prob. 15.2MCQCh. 21 - Prob. 15.3MCQCh. 21 - Prob. 16DQPCh. 21 - Prob. 17DQPCh. 21 - Prob. 18DQPCh. 21 - Prob. 19DQPCh. 21 - Prob. 20DQPCh. 21 - Prob. 22DQPCh. 21 - Your client, Ridgewood Heating and Cooling,...Ch. 21 - Prob. 24DQPCh. 21 - Prob. 25DQPCh. 21 - Prob. 26DQPCh. 21 - Prob. 27DQPCh. 21 - Prob. 28DQPCh. 21 - Prob. 29DQP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- An auditor is examining a nonpublic company’s inventory procurement system and has decided to perform tests of controls. Under which of the following conditions do GAAS require tests of controls be performed by an auditor?a. Significant weaknesses were found in the company’s internal control.b. The auditor hopes to reduce the amount of work to be done in assessing inherent risk.c. The auditor believes that testing the controls could lead to a reduction in overall audit time and cost.d. Tests of controls are always performed when the auditor begins to assess control risk.arrow_forwardAs the auditor of Sample Limited you note the following matters relating to the internal control of its sales system. i) The sales department accepts order without first checking the inventory level with the warehouse. ii) Goods are dispatched to customers without recording customer's signatures as proof of receipt of goods. iii) Orders of goods placed by customers are properly recorded but they are not forwarded timely to the dispatch department for fulfilling the order. a) For each of the above deficiencies, identify the possible impact on the company's operation and recommend a control to address it. b) Explain why an auditor cannot perform only test of control in an audit.arrow_forwardAs the auditor of Sample Limited you note the following matters relating to the internal control of its sales system. i) The sales department accepts order without first checking the inventory level with the warchouse, ii) Goods are dispatched to customers without recording customer's signatures as proof of receipt of goods. iii) Orders of goods placed by customers are properly recorded but they are not forwarded timely to the dispatch department for fulfilling the order. For each of the above deficiencies, identify the possible impact on the company's operation and recommend a control to address it. Explain why an auditor cannot perform only test of control in an audit.arrow_forward
- An auditor discovered the following errors and irregularities while performing tests of controls: 1. Goods received on October 3 were never placed in the storeroom but instead were taken to the receiving clerk’s home. Required:a. What control would have prevented or detected each of the aforementioned errors/irregularities?b. What tests should the auditor perform to test each control?c. To which financial statement assertion does the error or irregularity relate?arrow_forwardAt the completion of an inventory observation, the controllerrequested the auditor to give him a copy of all recorded test counts to facilitate the correction of all discrepancies between the client’s and the auditor’s counts. Should the auditorcomply with the request? Why?arrow_forward1. A threat to the expenditure cycle that involves an employee creating and approving fictitious purchase orders is known as: A. Inventory theft B. Unauthorized access C. Check tampering D. Billing schemes 2. Purchase orders are used to initiate a payment in the disbursement cycle. True or False 3.Vendor audits are conducted to address the threat of unauthorized access in the disbursement cycle. True or falsearrow_forward
- Listed below are the management assertions that are contained in financial statements, financial statement misstatements, and concepts. For each of the below misstatements and concepts, select the appropriate assertion by management that is being violated. Replies may be used more than once. Misstatements & Concepts a. The client failed to include in their financial statements inventory that was consigned to others. b. The client had a significant amount of damaged goods that were presented at cost. C The client failed to describe in the financial statements significant debt restrictions. d. The client recorded receivables that were fictitious. e. The client recorded year-end sales in the subsequent year. f. The client included in their financial statements inventory that was on consignment from vendor. g. In directional testing, vouching from ledgers to source documents most directly addresses this assertion. h. In directional testing, tracing from source documents to journals most…arrow_forwardAnthony is asked to do an inventory count of a wide assortment of parts. Rather than taking the time to count, he guesses when he enters the quantity. Which, if any, ethical standards did Anthony violate? O Competence - failure to perform duties in accordance with laws and regulations. O Confidentiality - failure to inform all parties of confidential information O Integrity - failure to mitigate conflicts of interest O Credibility - failure to report any delays or deficiencies in information O Integrity - Contribute to a positive ethical culture O Credibility - failure to communicate information fairly and objectively.arrow_forwardWhich of the following procedures is usually performed by the auditor to determine if obsolete inventory exists? a. Footing the inventory subsidiary ledger b. Analysis of inventory turnover and sales reports c. Sample the inventory reported by the client, examine the purchase date and receiving reports d. Confirmation of inventory with client’s customers Which statement is true? a. The incomplete recording of asset disposals understates the asset balance b. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well to lower the subsequent depreciation expenses c. Management never over-accrue impairments on machinery because it reduces the balance of assets d. Management may be incentivized to over-recognize impairments on machinery when the company is doing really well because auditors will be more skeptic over the performance that is “too good to be true”arrow_forward
- An auditor discovered the following errors and irregularities while performing tests of controls:1. Goods received on June 3 were never placed in the storeroom but instead were taken to the receiving clerk’s home. REQUIRED: a. To which financial statement assertion does each error or irregularity relate? Answer : Rights and obligations - Can someone please explain to me why the answer is rights and obligation for assertion.arrow_forwardAs part of your audit of a client’s inventory balance, you created an expectation of what should be the inventory balance by using the gross profit method. The only concern was the difference between your expectation and the client’s financial statements which come in the form of using the gross profit method of estimating inventory as against the client reported balance which is below audit materiality level for audit of inventory. What is the best choice to do next? * A. Discuss with the management the implication of the significant difference and propose an adjusting journal entry accordingly.B. Extend audit procedures by doing further analytical procedures on the inventory balance.C. Extend audit procedures by doing test of details of the account balance.D. Issue an unqualified opinionarrow_forwardBefore the physical examination, the auditor obtains a copy of theclient’s inventory instructions and reviews them with the controller. In obtaining an understanding of inventory procedures for a small manufacturing company, these deficienciesare identified: Shipping operations will not be completely halted during the physicalexamination, and there will be no independent verification of the original inventory countby a second counting team. Evaluate the importance of each of these deficiencies and stateits effect on the auditor’s observation of inventoryarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub